Analyst Upgrades and Downgrades You Should Know About

By Andrea Tryphonides

Another raft of European equity rating upgrades and downgrades Thursday. We’ve selected the key recommendation changes you need to know about:

Kicking off with the banks sector, HSBC was downgraded to underperform from neutral by BofA-Merrill Lynch as it looks like it will be facing a number of revenue headwinds in 2012. “U.S. repositioning, falling Balance Sheet Management revenues and a troubled outlook for investment banking means that revenues are likely to be down, not up as consensus expects,” said the brokerage. It prefers Standard Chartered amongst the U.K./Asian banks for its earnings per share (EPS) resilience and capital strength.

Meanwhile, Banca Popolare di Milano was upgraded to neutral from underperform by Exane BNP Paribas. Exane no longer sees company-specific downside risks although sentiment towards Italian sovereign risk will continue to be the main driver of bank stocks for the foreseeable future, it added. In addition, weak profitability appears to already be priced in.

Citigroup upgraded UniCredit to buy from neutral. It said the valuation now looks more attractive and once the capital increase is completed, management’s attention can refocus on restructuring. However, investing in UniCredit is a high-risk strategy says Citi. “Deteriorating macro-economic conditions and sovereign volatility, credit rating agency actions, liquidity risk, the outcome of the pending capital increase as well as execution risk in the restructuring plan could all weigh on group profitability and the share price.”

Sticking with Citi, the brokerage has turned its attention to the European media sector, upgrading Havas to buy from neutral and downgrading both British Sky Broadcasting Group and Reed Elsevier to neutral versus buy. Analysts at Citi said the sector faces significant headwinds in 2012, reflecting a weak outlook for advertizing as well as government funding pressures. “We think Euro media should be a fertile hunting ground for those investors seeking to balance ‘quality’ with ‘acceptable risk’” the analysts said. (News Corp., which owns Dow Jones & Co. and The Wall Street Journal, holds about a 39% stake in BSkyB.)

Finally, JPMorgan Cazenove downgraded France Telecom to underweight from neutral after the launch of the Free Mobile service, pioneered by Iliad’s Xavier Niel, the French billionaire. JPM thinks Iliad’s launch of up to 90% lower mobile tariffs is commercially robust in terms of data capacity and gross margins. “Free Mobile is likely to enjoy good traction with French consumers, and will, in our view, require incumbent responses to protect market share,” said the brokerage.

Add a Comment

Thanks for reading The Source. We would like to direct you to MoneyBeat, the Wall Street Journal’s brand new global blog. MoneyBeat unites MarketBeat, The Source, Overheard and all the Deal Journal blogs, bringing together all the market, M&A, IPO and hedge-fund news from those blogs into a 24-hour hub for finance news. Check it out and let us know what you think at moneyblog@wsj.com.